Google's 'Project Glass': An Over-Hyped Hobby

Many have been touting Project Glass as an invention that will somehow make the smartphone obsolete, and revolutionize the way we interact with the world. However, I have yet to see a single piece of analysis question whether a market for a smartphone accessory that you wear on your nose exists.

What convenience does this device offer?

Project Glass could be useful for employees who require the ability to send and receive messages without taking their eyes off a particular task. As Google(GOOG) has shown us, it can also be used to record and transmit life experiences without having to hold a smartphone. It is also reported to provide its users the ability to receive turn by turn directions in front of their face, removing the need to look down at your smartphone. It has been suggested that Project Glass will allow its wearer to project images, videos, or a sequence of buttons onto any surface, in a similar fashion as the "sixth sense device" developed at MIT. While these things could be useful, I doubt this type of functionality would justify the price this device will carry, or the requirement of having to wear it on your face.

In one simple fake video, Google has created a level of over-hype and over-expectation that their hardware cannot possibly live up to. -- Blair MacIntyre, Georgia Tech (Wired)

Wearing Glasses is not Desirable

I can say first hand that wearing glasses is not fun. There are a litany of reasons that contacts were invented. Very few people like wearing glasses, unless they are trying to add some flavor to their attire. Glasses are expensive, need constant maintenance, require a case to be kept in, and change the way people perceive you.

Certain people may wear a frame to complement their clothing, or to make a statement about their personality, much in the way that people wear sunglasses to convey dominance. What message will Google Glasses send? Will it tell the world that you have no sense of direction? Will it define you as an anti-social person who can't step away from the computer?

Google Co-Founder and President of Technology Sergey Brin has stated that he finds smartphones to be emasculating. Something about the action of rubbing a piece of glass? I would love for him to explain how there is nothing emasculating about wearing this expensive fashion accessory. I can imagine the awkward moments this device will produce. Have you ever asked someone to please take off their sun glasses? Normally, it is considered rude to obstruct your face when talking to someone, or when in a public setting. To make matters worse for Project Glass, I can't imagine it would ever become acceptable to walk into a public building with a camera strapped to your head.

Google Glass will ultimately have to contend with the same forces that have made wearing a Bluetooth headset a faux-pas in almost every circumstance. (Wired)

Most Android Smartphone Users Can't or Won't Buy This

As data has shown us, Google dominates smartphone unit sales because the majority of their phones are significantly cheaper than the competition. According to Google's published figures, less than 13% of Android users are running the most recent software, with more than 50% of its users running a version that hasn't been updated in three years. As many have pointed out, Android users prefer to invest significantly less money into their phones than iPhone users. Data has also shown that Android users invest half the time of iPhone users with their Apps. I would love to see data that suggests that more than a miniscule number of Android users would be willing and able to invest significant time and money into this kind of gadget. I suspect that Apple(AAPL) customers, who are less price sensitive, might be the main market for this device, and I can't imagine many would find it to be worth the effort, the inconvenience, or the price.

Conclusion

For a new technology to be adopted, it must have a real world function that fixes an existing problem. Project Glass has minimal practical functionality. If Google had included an integrated cellular radio, Project Glass might, for a handful of technophiles and early adopters, be a worthy alternative for a smartphone. As it exists today, I suspect it is nothing more than a fad that will not gain meaningful momentum, unless the price drops dramatically. To make matters worse for Project Glass, it has been suggested that a version with an internal cellular radio will never materialize because it might cause cancer, and would significantly reduce the battery life.

Even if Google can successfully produce a market for Project Glass, it will not have a meaningful impact on EPS. Analysts have suggested that the average price of "smart glasses" would have to be around $400 to have a viable market. If Google can sell 20 million of Project Glass in 2014 (a very optimistic number), and we assume Gross Margins of 25%, it will only add $2 billion to gross profit. Assuming Google spends $500 million to market this product globally, they would net $1.5 billion. Considering bullish analysts expect Google to report 26 billion in profit in 2014, Project Glass would, under this optimistic scenario, only add 4% to EPS. If Google prices Project Glass around the current developer price of $1,500, or if the device never catches on, it is very likely that they will lose money on this endeavor, especially when accounting for research and development costs.

I have no doubts that Google will try their best to convince the public that wearing and using Project Glass is cool, worthwhile, and socially acceptable; however, I have serious doubt their efforts will work. It seems far more likely that Project Glass will go the way of Google Wave, where lots of people loved the idea, and some bought into it, but very few people actually used it.

Investors are paying too much attention to the Google Glass effort, have priced in fairly optimistic assumptions about future earnings, and are ignoring the possibility that Project Glass will end up being nothing more than a fad. Although Google remains a great company, I suspect at the current price, too much optimism has been priced into the stock.

Disclosure: I am long AAPL. I have no position in Google (NASDAQ:GOOG), and no plan to initiate any position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.